The Stop Online Piracy Act (SOPA), and its Senate counterpart, the Protect IP Act (PIPA), have ignited widespread online protests–yet there is considerable confusion surrounding the legislation. Here’s a rundown of how the bills would work:

The legislation would allow copyright holders and the Justice Department to seek court orders against websites associated with copyright infringement. SOPA, the House version, applies to both domestic and foreign websites, while PIPA targets foreign websites. If that court order is granted, the entire website would be taken down. Internet users who typed in the site’s URL address would receive an error message, and for all appearances, the site would never have existed. Importantly, the court does not need to hear a defense from the actual website before issuing its ruling. The entire website can be condemned without a trial or even a traditional court hearing.

Copyright holders like movie studios can also invoke a “private right of action” against just about any company that does business with a website that copyright holders believe to be involved in copyright infringement. Copyright holders can demand that payment processors to cutoff the flow of money to a website or that search engines eliminate links to it — without ever entering a courtroom. Movie studios and record labels can also require online advertising networks on the website and Internet service providers from hosting the site.

Companies can protest any of these directives from copyright holders, but must get involved in a court action to object. If they choose to simply follow orders from movie studios, both SOPA and Protect IP would give these companies legal immunity for cutting off any legitimate websites that were falsely accused of copyright infringement. Internet service providers and payment processors could not be sued for taking action against sites that were not, in fact, doing anything improper.

For example, if a website was streaming “The Hangover” without permission, Warner Bros. could ask the Justice Department to obtain a court order for to shut down the entire site — not merely remove the specific film, as required under current law. Alternatively, Warner Bros. could force credit card companies to stop processing payments to the site, make Google to remove it from search results, and the force the site’s ISP from hosting it on the Web.

The language in the bill is vague, however, and could spark the shutdown of many websites that accidentally use snippets of copyrighted material that they believed to be available for free under “fair use” standards.

The legislation poses a significant risk to social media. If links to pirated movies were posted on Twitter or Facebook, the Justice Department could seek to shutdown the entire social media website, while Hollywood and other copyright owners could use their private right of action to severely limit the site’s functionality.

Critics emphasize that copyright holders frequently abuse even existing copyright infringement tools that require websites to remove improper content, and believe those problems would be dramatically escalated by SOPA and Protect IP. “We would get a lot of erroneous…takedown notices, even on our own trailers for our own films put up on YouTube, because keywords would match,” said Reddit general manager Erik Martin recently, who previously worked at an independent film production company. “Especially when companies are using automated tools — it’s a script, and human beings aren’t even looking at this — the potential for abuse [under Protect IP and SOPA] is huge.”

The Justice Department would engage in a process called DNS (Domain Name System) blocking to shut down sites, a tactic which internet experts warn could harm the functionality and stability of the web. Sen. Patrick Leahy (D-Vt.) has said that he will include a provision in the final bill requiring a study of the potential effects of the practice–however, it would still require DNS filtering after the study concludes.

SOPA makes it a felony to stream copyrighted video without permission, punishable by prison time.

Under current law, companies that think that their material has been improperly used can request for it to be removed, but cannot ask for entire websites to be taken down–hence the frequent sight of videos no longer available on sites like YouTube.